German Economy Contracted More Than Forecast in 4Q

A road sign is seen outside the Deutsche Bundesbank, Germany's central bank, in Frankfurt. The debt crisis that began in Greece three years ago has forced governments across the region to cut spending to rein in deficits. Photographer: Ralph Orlowski/Bloomberg

Feb. 14 (Bloomberg) -- The German economy, Europe’s
largest, shrank more than economists forecast in the fourth
quarter as exports declined.

Gross domestic product fell 0.6 percent from the third
quarter, when it gained 0.2 percent, the Federal Statistics
Office in Wiesbaden said today. That’s more than the 0.5 percent
contraction predicted in a Bloomberg News survey of 47
economists. The French and Italian economies also shrank more
than forecast, with GDP falling 0.3 percent and 0.9 percent,
respectively, in the fourth quarter.

Germany’s Bundesbank lowered its 2013 growth forecast in
December to 0.4 percent, citing the knock-on effects of the
sovereign debt crisis that has tipped the euro region into
recession. Still, there are signs Germany is already rebounding
from its fourth-quarter slump, with business and investor
confidence rising more then forecast in January and unemployment
unexpectedly dropping.

“The figures released in individual member states so far
suggest that euro-zone GDP growth is likely to have fallen
sharply in the fourth quarter,” said Nick Kounis, head of macro
research at ABN Amro Bank NV in Amsterdam. While declining
uncertainty and easing market tensions “have sowed the seeds
for a recovery,” budget cuts and rising unemployment suggest it
will be “excruciatingly slow.”

Below Expectations

The euro dropped more than half a cent today and traded at
$1.3380 at 10:45 a.m. in Frankfurt. The economies of Austria and
the Netherlands contracted 0.2 percent in the fourth quarter,
while Slovak growth of 0.7 percent from a year earlier remained
below economists’ expectations for a 1 percent expansion.

The debt crisis that began in Greece three years ago has
forced governments across the region to cut spending to rein in
deficits. That has driven at least five of the 17 euro nations
into recession, including Italy and Spain, the region’s third-and fourth-largest economies.

The Spanish economy contracted 0.7 percent in the fourth
quarter, the Madrid-based National Statistics Institute said on
Jan. 30.

The euro-area recession probably deepened in the fourth
quarter, with GDP falling 0.4 percent after a 0.1 percent
decline in the third, according to another Bloomberg survey.
That report is due from the European Union’s statistics office
in Luxembourg at 11 a.m. today.

Declining Exports

Germany’s fourth-quarter contraction was caused by
declining exports as well as less company investment and
construction, the statistics office said. Household and
government spending increased slightly. A detailed breakdown
will be published on Feb. 22. From a year earlier, the economy
grew 0.4 percent when adjusted for working days.

In an unofficial estimate on Jan. 15, the statistics office
had predicted a 0.5 percent drop in GDP in the fourth quarter
from the third. Germany’s economy expanded 0.7 percent last year
after 3 percent growth in 2011.

If positive developments like the stabilization of the
Spanish property market and rising euro-area economic confidence
are sustained, orders from the currency bloc may fuel Germany’s
recovery.

German exports rose 0.3 percent in December and foreign
factory orders jumped, driven solely by a surge in demand from
the euro area, Germany’s largest export market.

Improving Confidence

Germany’s Ifo business climate index has outperformed
economists’ expectations for the past three months, services
output rose at the fastest pace in more than 1 1/2 years in
January and a gauge of manufacturing climbed. That helped
unemployment to unexpectedly drop for a second month in January,
taking the jobless rate down to 6.8 percent.

Confidence in global growth, which the Organization for
Economic Cooperation and Development predicts will accelerate to
3.4 percent this year from 2.9 percent, is spurring investment
too.

Daimler AG Chief Executive Officer Dieter Zetsche said on
Feb. 7 the company will roll out 13 new models with no
predecessor in the next eight years as part of an aggressive
plan to retake the top spot in luxury-car sales by 2020 at the
latest.

Strong Euro

At the same time, European Central Bank President Mario
Draghi has warned that the region’s economy isn’t out of the
woods yet, and it will take until the second half of the year
for a recovery to take hold.

The region’s exporters could also struggle because of an
appreciating euro, which reached a 14-month peak against the
dollar earlier this month and could force the ECB to act.

“We want to ascertain if the appreciation is sustained and
has the potential to change our assessment of the risks to price
stability,” Draghi said at a press conference in Madrid on Feb.
12.

Some German companies are still uncertain about the
economic outlook. MAN SE, Europe’s third-largest maker of
commercial vehicles, said it may slow investments and will work
to cut spending this year as the region’s shrinking economies
cause earnings to drop.

“For Germany, things are looking pretty good but for
others there are certainly tougher headwinds to face,” said
Alexander Koch, an economist at UniCredit Group in Munich. “In
all, the euro area should return to growth in the second half of
the year.”